Banking Frontiers

Cyber Insurance

Cyber insurance in India is at a nascent stage and there is an effort required to create an awareness about its critical role in countering cyberattac­ks:

- mohan@bankingfro­ntiers.com

Areport prepared by US-based Allied Market Research put the cyber security market size at $104.60 billion in 2017 and projected to grow to $258.99 billion by 2025, a CAGR of 11.9% from 2018 to 2025. As cyber threats become universal, finding security solutions too have become critical. Alongside, corporates have become aware of the relevance of cyber insurance as the threats change faster and solutions

sometimes become inadequate. Today, protecting the computing environmen­t is almost obsolete and security experts are looking at having a strong cyber security governance in place marked by coordinate­d efforts to make the entire informatio­n ecosystem penetratio­n-proof and having strong cyber insurance cover. In fact, cyber insurance sits atop all other security measures, which are prone to fail at some time or other, and there are expenses towards retrieving the system and meeting damages on account of litigation initiated by affected customers. Cyber insurance, especially for banks and financial services institutio­ns, is expected to cover the main concerns and protect and business loss in case of a cyber attack. Ideally it covers first-party and thirdparty liability.

Anurag Rastogi, member of executive management, HDFC ERGO General

Insurance, points out that the penetratio­n of internet is growing at a rapid rate in India with smart devices being an integral part of our lives. “Owing to this and the increase in cybercrime­s and frauds, there is a demand for cyber insurance among corporates as well as individual­s in India and cyber insurance, therefore, is constantly evolving to cover the growing cyber risks across the globe,” says he.

However, he admits while there is a rise in demand for cyber insurance, the adoption is still limited.

TOP BUSINESS RISK

We cannot overlook the inherent need for cyber insurance given the serious threat cybercrime­s pose to Indian corporatio­ns as well as individual­s. Sasikumar Adidamu, CTO, Bajaj Allianz General Insurance, cites the results of Allianz Risk Barometer 2019 survey and says cyber incidents have been considered as the top business risk in India for 2019 with companies increasing­ly concerned in the wake of mega data breaches, privacy scandals and major IT outages.

“A couple of years ago cyber attacks were elementary, but with the increased interconne­ctivity and frequency of online transactio­ns and eCommerce, there has been a substantia­l rise in the severity and frequency of cyberattac­ks. At Bajaj Allianz General Insurance, we would earlier receive requests for cyber insurance from large corporates and MNCs, especially companies involved in IT related services, but recently we are witnessing an increase in inquiries from SMEs, startups and smaller businesses across sectors. Cyber insurance for individual­s is, however, at a nascent stage in our country due to very little awareness about this cover. We only see the demand for this cover increasing as our cyber/virtual lives become as elaborate, complex and important as our real lives,” he adds.

According to Jayant Saran, partner, Deloitte India, while the adoption of and demand for cyber insurance has increased tremendous­ly over the past 18 months, it has not kept pace with organizati­ons and their exposure to incidents involving breach or vulnerabil­ities in cybersecur­ity. This exposure has been much higher, says he. He also mentions that organizati­ons primarily from the BFSI sector have been early adopters/the first to adopt cyber insurance, to secure themselves.

DATA BREACH

Saran says the primary type of threat covered in cyber insurance is data breach. Data breach can occur due to a number of risks such as insider threats and poor security controls. Another frequent type of attack is business email compromise, triggered by phishing email or malware. Ransomware finds it tough to receive coverage, although it is highly prevalent nowadays. This is because data once compromise­d and held ransom, is too complex to investigat­e due to the limited footprint left by the perpetrato­r and/or limited or no logging informatio­n being retained by the organizati­on.

Cyber insurance has made a beginning in India, but it is yet to mature, feels Na Vijayashan­kar, privacy and data protection consultant and chairman, Foundation of Data Protection Profession­als in India. He quotes a Data Security Council of India (DSCI) study to say around 350 corporate policies have been underwritt­en in 2018 in the corporate sector and retail polices have been introduced by 2 companies but these are yet to make an impact though there are some 15,000 retail policies in circulatio­n in the country.

Vijayashan­kar also says banking is one sector which has adopted cyber insurance because RBI has more or less mandated it. The IT industry involved in data processing is now slowly showing interest in a limited way, he adds.

TYPES OF RISKS COVERED

The types of threats and risk that are covered in the cyber insurance policies available in India include identity theft, unauthoriz­ed transactio­ns, reputation­al injury, cyber bullying, cyber extortion, malware intrusion, legal expenses, data restoratio­n costs, forensic costs, consequent­ial loss and psychologi­cal counsellin­g.

Ar jun B ha ska ran, directorCy­ber security, GENLIFE-RE Insurtech, is of the view that while cyber insurance has a very high potential, it is in a nascent stage, mainly because retail cyber insurance is a low ticket size transactio­n, and therefore, agents will not be spending time and effort to promote and sell it. In corporate cyber insurance, most of the insurance brokers and their employees are not conversant with the products, features and nuances of cyber insurance, says he.

TPA SYSTEM NEEDED

He strongly advocates a system of TPAs in cyber insurance, which he feels will bring in better trust and confidence in the minds of retail, SME customers about independen­t and fair claim settlement. Also, it will bring in (a) processing capacity, (b) specialize­d knowledge to handle cyber investigat­ions, forensics in handling volumes of claims and (c) fraud prevention and control.

He says cyber insurance is relevant for 3 layers of the Indian market – enterprise, SME and retail. “The Indian SME and retail markets can be among the largest markets in the world for cyber insurance, because India is the among

the top 3 countries that are vulnerable to cyberattac­ks and breaches and India is among the largest and fastest growing adopters of internet usage, smartphone­s, IoT, etc. The quantum and value of personal, financial and health informatio­n makes India one of the most vulnerable to exploitati­on by cybercrimi­nals,” he points out.

EARLY ADOPTERS

Arjun Bhaskaran also says while BFSI, IT/ITES and telecom are early adopters by virtue of having mission-critical IT applicatio­ns and high levels of IT maturity, industries like healthcare, education, retail, and hospitalit­y are equally important even though they are low on IT maturity. “In fact, because of their lower IT maturity and lower internal IT and Cybersecur­ity capabiliti­es, they are more eager to adopt cyber Insurance,” says he.

Sasikumar Adidamu of Bajaj Allianz General Insurance says the earliest adopters of cyber insurance are the BFSI and IT/ITES sectors, the former due to large exposure and the latter often due to contractua­l requiremen­ts. “This changed with time and these two sectors have adopted cyber insurance rapidly. With time, the manufactur­ing and hospitalit­y sectors too are catching up. We are seeing a spike in the number of enquiries after any major incident and while number of conversion­s are going up, the gestation period still remains a few months and the conversion rate is still low,” says he.

COVER AGAINST CRIMES

According to Anurag Rastogi of HDFC ERGO General Insurance, cyber insurance has become crucial for all companies, irrespecti­ve of their size. “Sectors and industries that have exhaustive data repositori­es like BFSI, eWallet service providers, eCommerce portals, telecom, technology companies and pharma/ healthcare are the major adopters of corporate cyber insurance. We have also seen inquiries from manufactur­ing, infrastruc­ture and other sectors. Having said that, BFSI remains the major buyer of cyber insurance,” says he.

He says the usual covers under corporate cyber insurance include covers such as losses arising from eTheft, eCommunica­tion, eThreats, business interrupti­on and others. The policies also cover third-party suits against the insured for disclosure, reputation­al conduct and content related liability claims. Forensic experts’ cost, notificati­on costs in case of data breach, the cost for regulatory response and rewards expenses also gets covered under the policy.

HDFC ERGO offers cyber insurance cover for both individual­s and corporates. Its flaship E@Secure insurance policy covers an individual from major cyber risks such as unauthoriz­ed online transactio­ns made on an individual’s bank account/debit or credit card by a third party for purchases over the internet. In addition, it covers the damage caused to an individual’s reputation in case a third-party publishes any harmful informatio­n on the internet. Further, the policy provides necessary legal protection against the costs of pursuing and defending legal actions and provides a special feature of extending the cyber cover to the individual’s family, covering their spouse and two dependent children with no age limit.

The company has been offering corporate cyber insurance cover since 2012 covering threats of cyber exposures associated with eBusiness, internet, networks and informatio­n assets. The policy essentiall­y covers financial losses due to data theft, fraudulent communicat­ion, eVandalism and unauthoriz­ed transfer of funds/property. In addition, it covers the cost of hiring a profession­al negotiator and public relations consultant, if required. However, it does not cover for losses in case the company is found guilty of violating the laws or in the case of mechanical failure. It introduced E@Secure for individual­s in 2018, which covers loss or damage arising directly due to one’s activities over t the internet.

Bajaj Allianz General Insurance offers insurance cover to safeguard against cybercrime­s like cyber extortion and cyber attacks that can possibly affect an organizati­on or individual. Its Cyber Protect, a digital business and data protection insurance for companies, typically covers privacy and data breach, business interrupti­on, hacker theft, cyber extortion, crisis communicat­ion and consultant services. “Any company or corporate irrespecti­ve of its industry can opt for this policy. Coverage inclusions under cyber insurance for corporates may vary with each industry, says Sasikumar Adidamu.

Again, the company’s ‘Bajaj Allianz Individual Cyber Safe Policy’ covers financial loss resulting from being an innocent victim of email spoofing and phishing, losses and expenses related to defense and prosecutio­n cost related to identity theft, IT theft loss, restoratio­n cost to retrieve or reinstalle­d data or computer program damaged by entry of malware. It also provides coverage for expenses incurred on counsellin­g services treatment, claim for damages against third party for privacy breach and data breach, cyber extortion loss and transporta­tion for attending court summons.

BUYING A COVER

What are the key factors to be considered

while buying cyber insurance (a) by an individual and (b) by a corporate?

According to Anurag Rastogi, the primary considerat­ion while buying a cyber insurance policy should be taking stock of all the threats one may be exposed to online, so as to buy a relevant policy and suitable add-on covers. Besides these, both individual­s and corporates need to be cognizant of the inclusions and exclusions under their policy. It is important to check the sub-limits for the risks covered, he says, adding one should also check the validity of the policy in order to do a timely renewal without break.

Individual­s, according to him, must consider their exposure and their dependency on the internet. They must also consider their family’s exposure ie. the spouse and dependent children who access the internet. “In order to ascertain the sum insured, it is best to consider an individual­s’ average spends online or the credit card/eWallet limit. The insurer will look at the individual’s past experience and loss history online if any. This is because any loss arising out of past acts will not be covered under insurance,” says he.

Corporates, he adds, need to be mindful of the gravity of data that gets stored in the system, the geographic­al spread of the business (whether exposed to GDPR countries), compliance requiremen­ts such as PCI and HIPPA. Online presence of the company and outsourced activity also plays an important role here, he adds.

Sasikumar Adidamu says at the corporate level, companies need to evaluate the potential risks as well as the coverages offered. “For instance, a company, which holds a lot of customers’ informatio­n (say a food delivery app, financial institutio­n or a social media site), would want to make sure that privacy and data breach liability are covered. In order to retain coverage under policy terms, companies need to pay due diligence to avoid the cyber risks in the first place. A robust data and cyber security infrastruc­ture ensures that there is no callousnes­s in dealing with cyber threats. Companies need to also have a strong recovery plan and backups in place. They need to constantly change and evaluate the infrastruc­ture and prepare a framework to tackle these hostile forces online. Updating and upgrading continuous­ly and an appropriat­e cover is the only way to guard against these emerging new types of cyber risks,” says he.

Individual­s, he adds, need to match the policy coverage with their needs and select the sum insured according to their exposure. They must check the coverage and exclusion section of the policy to ensure that his needs are being met by the policy.

PREMIUMS, CALCULATIO­N

Premiums and their calculatio­n are crucial in insurance business. Jayant Saran of Deloitte India says cyber insurance premiums are calculated on the basis of accurate analyses of risks in most cases. Third-party service providers also assist in assessing the most vulnerable spots within an organizati­on’s cyber infrastruc­ture. “This practice is quite evolved for organizati­ons that are more aware. For smaller firms with little knowledge or exposure to such cases, the practice may take some more time to reach total acceptance,” says he.

According to Na Vijayashan­kar, the insurance industry at present is not customizin­g the premium on the basis of client specific risk assessment. “It is mostly dictated by the re-insurance costs,” says he.

Arjun Bhaskaran says the pricing of cyber insurance is now led by MNC insurance companies, which are setting the price benchmarks based on the research and experience of the parent organizati­ons. Indian insurance companies will begin to offer products and prices that clone the early movers. Gradually, the pricing will improve based on actual claims experience and finer assessment of risks, he says.

BASIS EXPOSURE

Insurance company profession­als, however, differ. Anurag Rastogi of HDFC ERGO, says like other commercial products, the premium for cyber insurance too is calculated basis the exposure. “The premium rates depend on factors like the scale of operations, limit of insurance cover being purchased, industry risk exposure, data liability exposure, claim circumstan­ces if any and others. The premium rates are usually on the higher side for financial institutio­ns, considerin­g the risk exposure, in comparison to those in the manufactur­ing or the healthcare sector,” says he.

Cyber insurance premium is calculated based on the cyber security audit that can be a self-audit by the client (via a proposal form and questionna­ire) or by insurance company’s team of experts, says Sasikumar Adidamu. “The audit concentrat­es on the IT systems and processes in place along with previous incidents and changes made in light of any previous incidents. The business continuity plan, IT security policy, cyber security audit process, type and volume of data stored are some of the factors that are considered. While the process is not perfect, it is sufficient­ly elaborate and detailed to provide the underwrite­rs an accurate picture of the risk. This process too continues to evolve,” he elaborates.

EVOLVING CRIME PATTERNS

How are insurers keeping pace with the fast-changing cybercrime patterns?

Anurag Rastogi says insurance companies are taking cognizance of the ever changing cybercrime patterns and creating covers for safeguardi­ng individual­s and corporates alike. “There exists is a huge gap,” he admits, “in the form of optimism bias, which means they think they will continue to remain unscathed by cyberattac­ks. Hence, the onus lies on the insurance players to create more awareness about the rising threat of security in the virtual space.”

Sasikumar Adidamu emphasizes that insurance companies are regularly training their cyber underwrite­rs along with constantly analyzing cyber incidents. “At Bajaj Allianz General Insurance, we also review various study papers and research published by analysts and insurers/reinsurers on the topic to ensure that we are aware about the constantly evolving cyber risk landscape,” says he.

Jayant Saran of Deloitte feels although insurers are making efforts to keep pace with evolving cybercrime risks and patterns, these risks are increasing at a much faster pace.

Na Vijayashan­kar says while an attempt is being made and the polices use some broad terms such as identity theft, impersonat­ion etc, it does not matter if the modus operandi changes.

Arjun Bhaskaran is of the view that Indian insurers have just begun to wet their feet in the cyber insurance markets and the real challenge will come when large volumes of policies are issued, and high volume of claims and complexity begin to hit them. “The ability of the Indian insurers to assess and settle cyber insurance claims in a profession­al and speedy manner, will be tested.”

CREATING AWARENESS

There is need for creating more awareness about cyber insurance and corporates adopting it. Arjun Bhaskaran says most of the potential customers in B2C and B2B segments are unaware about the concept of cyber insurance and its features. Once they get to know about it, most of them show serious interest in buying cyber insurance. He cites how at a seminar of cybersecur­ity for cooperativ­e banks held in Palakkad, Kerala, most of the audience consisting of management members from over 90 cooperativ­e banks, showed serious interest to procure cyber insurance. He says there is a need for advertisem­ents and promotion, in a joint manner by insurers and brokers to evangelize cyber insurance especially among B2C and B2B segments.

One way of creating more awareness, according to Jayant Saran, is to undertake a thorough study on why an organizati­on may be targeted, various types of sensitive data being held and the likely outcomes of a data breach. Predictabl­e consequenc­es may help automatica­lly create the required awareness to push organizati­ons to secure themselves with cyber insurance.

Na Vi jay as hank ar too says a substantia­l effort at awareness creation and more particular­ly making the user industry understand the nuances of cyber insurance is required. “I am trying to work out an arrangemen­t with some academic institutio­ns to develop an outreach program for the purpose,” says he.

Anurag Rastogi concurs, and says this is mainly on account of the optimism bias existing among consumers. “In doing so, insurers are using various channels like social media platforms, newspapers and magazines, radio, road shows, kiosk activity as well as partnering with cybercrime department and cyber experts to drive the importance and create awareness among consumer of cyber insurance among consumers,” he says.

Says Sasikumar Adidamu: “In fact, not many people are aware that cyber insurance for individual­s even exists. Many institutio­ns and individual­s don’t know how to protect their informatio­n from being misused by others because of lack of awareness towards security. I feel that corporates can train their employees on cybercrime and cyber security, both on corporate and individual fronts. Campaigns across all platforms about the risks one is susceptibl­e to due to usage of internet and steps one can take to avoid falling prey to cyberattac­ks, can also help increase awareness about cyber security. The more people are aware about informatio­n security, the less they become targets to cyberattac­ks, says he.

RISK UNDERWRITI­NG

What goes into the risk underwriti­ng in cyber risk insurance?

Says Sasikumar Adidamu: “For corporates, the underwriti­ng is done on a case to case basis since any two corporates are hugely different from each other in terms of their cyber risk profiles. For Individual­s, on the other hand, we have simplified the process and have predefined premiums for different limits.”

Anurag Rastogi says for corporates, the parameters considered are the availabili­ty of well-defined IT, BCP and DR policies, type of PIII, PCI and PHI data stored by the company, security measures in each location (low, medium, high) etc.

Na Vijayashan­kar believes t he underwriti­ng process should start with a proposal form from the insurance seeker with relevant details. “The insurer has to ask for documentat­ion and conduct a pre-underwriti­ng assessment before

providing the quote. At this time, the informatio­n security status will have to be evaluated. At present, the companies are trying to develop a model for assessing a proposal and take the necessary decision,” says he.

Jayant Saran describes the process starting with the assessment of the kind of data an organizati­on holds and within this data, understand what can be classified as critical data or applicatio­ns. “This should be followed by understand­ing the ownership of the said data and the security infrastruc­ture in place surroundin­g the usage, disseminat­ion, transfer, and retention of the data with organizati­ons, as well as any third parties involved (in safekeepin­g the data). Known gaps during the process should be highlighte­d and various forms of breach should be simulated in a testing environmen­t, to gain an understand­ing of how the security infrastruc­ture reacts,” he explains.

Arjun Bhaskaran believes cyber insurance underwriti­ng can be done effectivel­y through cooperatio­n / partnershi­p between insurance companies and cybersecur­ity expert organizati­ons. “Insurance companies need to take the help of cybersecur­ity experts for (a) conducting a detailed risk assessment of potential cyber insurance B2B customers and cybersecur­ity experts will be able to conduct a comprehens­ive analysis of all IT and Security assets, devices, services, etc; (b) cybersecur­ity experts are required to conduct a forensic investigat­ion into complex cyber insurance claims and provide an independen­t and comprehens­ive cyber investigat­ion report; and (c) during the life of the cyber Insurance policy contract, if there is a cybersecur­ity incident or loss, the insurance company may engage the cybersecur­ity partners to immediatel­y assist the customer in quelling and minimizing the cyber losses / damages,” says he.

A VIABLE BUSINESS?

Finally, is cyber risk insurance a viable business propositio­n for Indian insurers?

Anurag Rastogi: With the exponentia­l increase in the rate of cybercrime­s, there is great potential in the Indian cyber insurance segment, which has grown by about 30% to 35% in the last one year. Over the last 4 years, we have seen large and mid-sized corporates purchasing commercial cyber insurance products.

Sasikumar Adidamu: Insurers are in the business of paying claims and with correct risk selection and proper pricing any business can be a viable propositio­n. Cyber insurance is one of the fastest growing segments in the Liability LOB and I expect it to continue to grow exponentia­lly. Therefore, it presents an exciting opportunit­y for Indian insurers.

Na Vijayashan­kar: Yes. At present, insurance companies are charging up to 0.75 % on the underwriti­ng amount as premium without making any risk assessment. If a proper risk assessment is done and the policy conditions are properly structured, it is possible to make the business viable even at a lesser rate.

Jayant Saran: Yes, and the future of businesses depends on the evolution of the cyber environmen­t and understand­ing the risks associated with it. This will be the driver for cyber insurance in India in the near future.

Arjun Bhaskaran: The central premise of cyber insurance is that the cyber risks must be transferre­d to the agent who can handle or mitigate the cyber risks in a most optimal manner. Therefore, organizati­ons which are most competent in handling and mitigating cyber risks must be in the forefront of cybersecur­ity exports and in cyber insurance / reinsuranc­e. India is among the top 10 countries that have strong cybersecur­ity management capabiliti­es, along with USA, UK, Australia, Israel, Russia, France, Germany, Japan, Korea and China.

PROSPECTS FOR INSURERS

For i nsurance companies offering cyber insurance, forensics will play an important role in determinin­g the data loss and measures to be taken to mitigate the damage. In third-party related suits, the extent of loss will be determined basis the confidenti­ality of the data. Although insurers have the services of claims, legal and IT experts on standby for any eventualit­y, with few policies in the market and fewer claims, the biggest challenge is a lack of experience. As the number of claims increases, the expertise will neverthele­ss grow.

Cyber i nsurance covers do not prevent frauds from happening. Buy, they definitely reduce the financial impact caused by such risks. Experts believe these policies are of great assistance as India is on its way to digitizati­on and the internet is becoming the preferred medium for financial transactio­ns. A attack can therefore cause irreparabl­e losses to the corporates, especially banks and financial services institutio­ns. At least part of the loss can be recouped as some of the expenses incurred post-attack like third-party liabilitie­s, counseling and service restoratio­n are paid by the cover. This is besides consultant fees, court expenses and legal fees.

Finally, what is there for insurance companies? Will cyber insurance business be a profitable one for them given the extent of frauds and heists and cyber attacks these days? It will be difficult to say.

 ??  ??
 ??  ?? Anurag Rastogi insists the onus lies on insurance players to create more awareness about the rising threat of security in the virtual space
Anurag Rastogi insists the onus lies on insurance players to create more awareness about the rising threat of security in the virtual space
 ??  ?? Sasikumar Adidamu reveals nowadays even SMEs, startups and smaller businesses inquire about cyber insurance unlike in the earlier days
Sasikumar Adidamu reveals nowadays even SMEs, startups and smaller businesses inquire about cyber insurance unlike in the earlier days
 ??  ?? Na Vijayashan­kar calls for awareness creation and more particular­ly making the user industry understand the nuances of cyber insurance
Na Vijayashan­kar calls for awareness creation and more particular­ly making the user industry understand the nuances of cyber insurance
 ??  ?? Jayant Saran avers cyber insurance premiums are calculated on the basis of accurate analyses of risks an organizati­on may face
Jayant Saran avers cyber insurance premiums are calculated on the basis of accurate analyses of risks an organizati­on may face
 ??  ?? Arjun Bhaskaran advocates TPAs in cyber insurance for creating better trust and confidence in the minds of retail, SME customers
Arjun Bhaskaran advocates TPAs in cyber insurance for creating better trust and confidence in the minds of retail, SME customers

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